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Introduction to E-Commerce

Introduction Electronic commerce (e-commerce) improves the efficiency and effectiveness of businesses,governments, and not-for-profit agencies. The ability to conduct business all over the world 7 days aweek and 24 hours a day is a major advantage of being online. In many cases e-commerce technologieslower the cost of production and distribution of goods and services. However, going online does notguarantee success if a sound business model is not followed and if the limitations and strengths of thisevolving technology are not carefully analyzed. In the past few years, the e-commerce world hasexperienced many successes and failures. At the same time, the number of goods and services soldonline has increased daily. Puree-businesses, such as eBay, and traditional businesses, such as DellComputer, have demonstrated significant savings and increased revenues by using the Web.

What is Electronic Commerce?


To better understand e-commerce one should distinguish between ecommerce and electronic business(e-business). E-commerce means electronic buying and selling on the Internet. E-business is anyelectronic transaction (e.g., information exchange), which subsumes e-commerce. Ebusinessencompasses all the activities that a firm performs for selling and buying services and products usingcomputers and communications technologies. E-business includes a host of related activities, such asonline shopping, sales force automation, supply chain management, electronic payment systems, andorder management. E-commerce sites are either pure e-businesses, such as Amazon.com, or they havean e-commerce presence, such as Wal-Mart Stores. Some e-commerce sites sell products, such as CDsand computers. Some e-commerce sites sell services, such as computer training and consulting. The Internet The backbone of the information superhighway and e-commerce is the Internet. The Internet is acollection of millions of computers and network systems of all sizes. One can simply refer to the Internetas the network of networks. The information superhighway is also known as the Internet. No

oneactually owns or runs the Internet. Each network is locally administered and funded, in some cases, byvolunteers. It is estimated that more than 200 countries are directly or indirectly connected to theInternet. This number increases daily and makes global e-commerce a reality. The Internet started in 1969 as a U.S. Defense Department Advanced Research Projects Agency projectcalled ARPANET. It served from 1969 through 1990 as the basis for early networking research and as acentral backbone network during development of the Internet. Since the Internets inception in 1987, thenetwork has grown rapidly.ARPANET evolved into the National Science Foundation Network (NSFNET) in 1987. NSFNET is consideredthe initial Internet backbone. The term Internet was derived from the term internetworking, whichsignified the networking of networks. NSFNET initially connected four supercomputers located at SanDiego, Cornell, Pittsburgh, and Illinois to form the backbone.

World Wide Web:


The World Wide Web (WWW or the Web) changed the Internet by introducing a true graphicalenvironment. Proposed in 1989 by Tim BernersLee at CERN, WWW is an Internet service that organizesinformation using hypermedia.Each document can include embedded reference to audio, images, full motion video, or otherdocuments. The WWW consists of a large portion of the Internet that contains hypermedia documents.Hypermedia is an extension of hypertext. Hypertext allows a user to follow a desired path by clicking onhighlighted text to follow a particular thread or topic. This involves accessing files, applications, andcomputers in a non-sequential fashion.Hypermedia allows for combinations of text, images, sounds, and full-motion video in the samedocument and allows information retrieval with the click of a button. Hypertext is an approach to datamanagement in which data are stored in a network of nodes connected by links. The nodes are designedto be accessed through an interactive browsing system. A hypertext document includes document linksand supporting indexes for a particular topic. A hypertext document may include data, voice, andimages. This type of document is called hypermedia. In hypertext documents the physical and logicallayouts are usually different. This is not the case in a paper document. In a paper document the author of the paper establishes the

order and readers are forced to follow the predetermined path.A hypertext system provides users with non-sequential paths to access information. This means thatinformation does not have to be accessed sequentially as in a book. A hypertext system allows the userto make any request that the author or designer of the hypertext provides through links. These linkschoices are similar to lists of indexes and can lead the reader on a custom path. Any computer thatstores hypermedia documents and makes them available to other computers on the Web is called aserver or a web server. The computers that request these documents are called clients. A client can be aPC at home or a node in a LAN at a university or an organization. The most exciting feature about theInternet and the WWW is that these hypermedia documents can be stored anywhere in the world. A usercan as easily jump from a site in the United States as to a site in Paris, France, all in a few milliseconds.

Domain Name:
Before a user can begin to navigate the Web and use it for personal use or ecommerce, anunderstanding of domain name systems (DNS) (also called do main name servers) is essential. Domainnames are unique identifiers of computer or network addresses on the Web. The following are examplesof domain names: Yahoo.com Microsoft.com Un.org Whitehouse.gov They come in two forms: Englishlike names and numeric or Internet Protocol (IP) addresses. The InternetCorporation for Assigned Names and Numbers (ICANN) is a nonprofit corporation that assigns and keepstrack of these addresses. This was previously performed under U.S. Government contract by the Internet Assigned NumbersAuthority (IANA) and other entities. IP addresses are less convenient because numbers are harder toremember. The English-like names are electronically converted to IP addresses for routing (transferringinformation from one network to the other network). Domain names are used in universal resourcelocators (URLs) to identify particular web pages.For example, in the URL http://www.abc-company.com/, the domain name abc-company.com. Everydomain name has a suffix that indicates which top-level domain (TLD) it belongs to. In the aboveexample, the suffix is .com , for company. Combinations of the letters of the alphabet as well as thenumbers 0 through 9 can be used in domain names. The hyphen is the only other character utilized;spaces are not allowed. The TLD

is the field on the far most right. It denotes the type of organization orcountry the address specifies. TLDs are divided into organizational (generic) and geographic (countrycode) domains and this system makes it easy to identify.

Organizational Domains (Generic Top-Level Domains):


.com Commercial organizations (e.g., Microsoft) .edu Education and academic organizations (e.g., California State University) .int International organizations (e.g., United Nations) .mil U.S. military organizations (e.g., U.S. Army) .gov U.S. government organizations (e.g., Internal Revenue Service) .net Backbone, regional, and commercial networks .org Other organizations such as research and nonprofit (e.g., The Internet Town Hall) Some of the Proposed New Domain Names .arts for entities emphasizing cultural and entertainment activities .biz for businesses .firm for businesses or firms .inc corporations .info for entities providing information services .law for the legal profession .nom for individuals or family names .news for news-related sites

.rec for entities emphasizing recreation and entertainment activities .shop for businesses offering goods and commodities .store for electronic storefronts .web for entities emphasizing activities related to the World Wide Web .xxx for adult content Sample Geographic Domains: Country Code Top-Level Domains .au Australia .br Brazil .ca Canada .fr France .de Germany .hk Hong Kong .jp Japan .kr Korea (Republic) .my Malaysia .ru Russia .es Spain .uk United Kingdom .us United States .va Vatican City State .zw

Zimbabwe A domain name for a company is as easy as a company name. The two leftmost fields of the domainname refer to the computer. This is relevant for large organizations with several levels of subdomains.Example: http://www.abc-company.com/management/clerk.htm A brief explanation from left to right follows:http (hypertext transfer protocol). Means of access. This is how the majority of web documents aretransferred. www.abc-company.com This is the address of a web site. It is uniquely defined and differentiatedfrom any other web sites. WWW (discussed earlier) is an Internet service that organizes informationusing hypermedia management This is a path or directory. A server may be divided into a series of directories for abetter organization. clerk.htm This is the document itself. The .htm extension indicates that this is an html document. Theauthoring language used to create documents on the Web, html defines the structure and layout of aweb document by using a variety of tags and attributes. All hypermedia documents are written in htmlformat. Servers that do not support long extensions display .htm, while other servers display html.

Defining E-Commerce:
E-commerce encompasses all activities that a firm performs for selling and buying products and servicesusing computers and communications technologies. In broad terms, e-commerce includes a host of related activities, such as online shopping, sales force automation, supply-chain management, electronicpayment systems, Web advertising, and order management. E-commerce is buying and selling goodsand services over the Internet. Based on this definition, e-commerce is part of e-business.Ecommerce builds on traditional commerce by adding the flexibility offered by computer networks andthe availability of the Internet. By generating and delivering timely and relevant information throughcomputer networks, ecommerce creates new opportunities for conducting commercial activities online,and thus it fosters easier cooperation between different groups: branches of a multinational company sharing information for a major marketing campaign; companies working together to design and buildnew

products or offer new services, or businesses sharing information to improve customer relations.

Examples of Companies Using E-Commerce:


Amazon.com provides access to several millionbooks electronically. It also sells music CDs, electronics,software, toys, video games, prescription drugs, and much more. Drugstore.com refills and sells new drugs and vitamins and other health products online. Apple Computer sells computers online (apple.com). Dell Computer and Gateway sells computers through their web sites and allow customers toconfigure their systems on the Web and then purchase them. Peapod sells groceries over the Web. Virtual Vineyards sells expensive wines from small vineyards over the Web.

Categories of E-Commerce
The several categories of e-commerce in use today are classified based on the nature of the transactions,including business-to-consumer (B2C), business-to business (B2B), consumer-to-consumer (C2C),consumer-tobusiness (C2B), and non-business and government, and organizational (intrabusiness). Inthe following paragraphs we define these categories.

Business to Consumer:
In B2C e-commerce, businesses sell directly to consumers. Amazon.com, barnesandnoble.com, andOnsale.com are three good examples of this category. Amazon.com and its business partners sell adiverse group of products and services to their customers, including books, videos, DVDs, prescriptiondrugs, online auctions, and much more. In addition to pure B2C e-commerce players such asAmazon.com, other traditional businesses have entered the virtual marketplace by establishingcomprehensive web sites and virtual storefronts.Wal-Mart Stores, the Gap, and Staples are examples of

companies that are very active in B2C e-commerce. In these cases, ecommerce supplements the traditional commerce by offering products andservices through electronic channels. Some experts believe that, in the long term, these types of businesses should be more successful than pure ecommerce businesses.Some of the advantages of these e-commerce sites and companies include availability of physical space(customers can physically visit the store), availability of returns (customers can return a purchased itemto the physical store), and availability of customer service in these physical stores.

Business to Business
B2B involves electronic transactions among and between businesses. In recent years the Internet hassignificantly increased B2B transactions and has made B2B the fastest growing segment within the e-commerce environment. The reliance of all businesses upon other companies for supplies, utilities, andservices has enhanced the popularity of B2B e-commerce. An example of B2B is an auto exchangeformed by Ford, Daimler Chrysler, and General Motors called covisint (http://www.covisint.com). Thissystem offers services in areas of procurement, supply-chain management, and collaborative productdevelopment. Partners achieve build-to-order capability through connectivity among the key lines of business and throughout an individual companys supply chain.Companies using systems such as covisint report millions of dollars in savings by increasing the speed,reducing errors, and eliminating many manual activities. Wal-Mart Stores are another major player in B2Be-commerce. Wal-Marts major suppliers (e.g., Proctor & Gamble, Johnson and Johnson, and others) sell toWal-Mart Stores electronically; all the paperwork is handled electronically. These suppliers can accessonline the inventory status in each store and replenish needed products in a timely manner.

Consumer to Consumer:
The C2C category involves business transactions among individuals using the Internet and webtechnologies. Using C2C, consumers sell directly to other consumers. For example, through classified adsor by advertising, individuals sell services or products on the Web or through auction sites such asubid.com. eBay.com is a good example of a C2C e-commerce company. Using this web site, consumersare able to sell a wide variety of

products to each other. Consumers are also able to advertise theirproducts and services in organizational intranets and sell them to other employees.

Consumer to Business:
Consumer-to-business (C2B) e-commerce involves individuals selling to businesses. This may include aservice or product that a consumer is willing to sell. In other cases an individual may seek sellers of aproduct and service. Companies such as priceline.com, travelbid.com, and mobshop.com for travelarrangements are examples of C2B. Individuals offer certain prices for specific products and services.

Non-business and Government:


The e-commerce applications in government and many non-business organizations are on the rise.Several government agencies in the United States have been using e-commerce applications for severalyears, including the Department of Defense, Internal Revenue Service, and the Department of Treasury.Universities are using e-commerce applications extensively for delivering their educational products andservices on a global scale. Not-forprofit, political, and social organizations also use e-commerceapplications for various activities, such as fundraising and political forums. These organizations also usee-commerce for purchasing (to reduce cost and improve speed) and for customer service.

Organizational (Intrabusiness):
Organizational or intrabusiness e-commerce involves all the e-commerce related activities that takeplace within the organization. The organization Intranets provides the high platform for these activities. These activities may include exchange of goods, services, or information among the employees of anorganization. This may include selling organization products and services to the employees, conductingtraining programs, offering human resources services, and much more. Although they are not directselling and buying, some of these activities provide support for a successful e-commerce program inhuman resources management, finance, and marketing.

Advantages and Disadvantages of E-Commerce:


Similar to traditional businesses, e-commerce presents many advantages and disadvantages. In the e-commerce world, doing business around the globe 7 days a week, 24 hours a day is a reality. Customersin any part of the world with an Internet connection can log onto the e-commerce site and order aproduct or service. Holidays, weekends, after hours, and differences in time zones do not pose anyproblem.Using various tools such as cookies, e-mail, and the company web site, the e-commerce site is able togain additional knowledge about potential customers. This knowledge could be effectively used to bettermarket products and services. For example, the e-business would know the customer preferences,shopping habits, gender, age group, and so forth.In the e-commerce environment, customer involvement could be significantly improved. For example,the customer can provide an online review of a book that he or she has recently purchased from the e-commerce site. Or the customer may participate in various open forums, chat groups, and discussions.An e-commerce site, by using tools such as an online help desk, company websites, and e-mail is able toimprove customer service. Many of the customers questions and concerns are answered using thesetools with minimum cost. Printing forms online, downloading software patches, and reviewing frequentlyasked questions (FAQs) are other examples of customer service.A B2B e-commerce site can improve its relationships with suppliers. E-commerce technologies enablethese businesses to exchange relevant information on a timely basis with minimum cost. Using B2B e-commerce assists businesses in managing a comprehensive inventory management system. An e-commerce site can improve its relationships with the financial community through the timely transfer of business transactions and a better understanding of the business partners financial status.Increased flexibility and ease of shopping is a significant advantage of e-commerce. The customer doesnot need to leave his or her home or office and commute to purchase an item. The customer does notneed to look for parking in a shopping mall during holidays, nor risk losing the supervision of his or hersmall children (for even a short period) or elderly relatives. Shopping tasks can be done from the privacyof the home with a few clicks of mouse!E-commerce presence could increase its potential customers. Customers from remote locations andthose outside of the businesss geographical boundaries can purchase products and services from the e-commerce site. In many cases an e-commerce site should be able to increase return on capital andinvestment since no inventory is needed. An effective e-commerce program is able to operate with noinventory or with

minimum inventory. In some cases an e-commerce site serves as middleman, takingorders from customers, routing orders to suppliers, and making a profit. In other cases an e-commercesite is able to maintain minimal inventory and fill customers orders through a JIT inventory system. Byhaving no or minimal inventory, the e-commerce site could avoid devaluation in inventory due to therelease of a new product, change in fashion, season, and so forth.In many cases an e-commerce site by using various web technologies is able to offer personalizedservice to its customers and at the same time customize a product or service to suit a particularcustomer. By collecting relevant information on different customers, a particular product or service couldbe tailor-made to customer taste and preference. In some cases, the customer may pick and choose, asin sites that allow the customer to create his or her own CD, travel plan, PC, automobile, and so forth.Many of the disadvantages of e-commerce are related to technology and business practices. Thesedisadvantages should be resolved in the near future. Possible capacity and bandwidth problems could bea serious; however, several projects are underway to resolve this issue in the near future.Security issues are major concern for many consumers. Security issues and measures are expected toimprove in coming years, through the use of media other than credit cards on the Web, such as eWallet,e-cash, and other payment systems, acceptance of digital signatures, more widespread application andacceptance of encryption technology, and greater awareness and understanding of customers concerns. The accessibility of customers issue will certainly become more manageable, as the number of Internetusers increases daily. Also, the reduction in cost of PCs, handheld, and other Internet appliances shouldfurther increase Internet applications and result in further accessibility of e-commerce. Similar to othertechnologies, acceptance of e-commerce by the majority of people will take time. However, the growth of the Internet and of online shopping points to further acceptance of e-commerce applications in the nearfuture. When the technology is fully accepted, a companys e-business strategies and goals will alsobecome better understood.